What is a Sino-foreign cooperative joint venture?
A Sino-foreign cooperative joint venture is a joint venture agreement between a Chinese and foreign company. According to merriam-webster.com, Sino means ‘Chinese and…’, just like Anglo means ‘English and…’ and Franco means ‘French and…’.
This type of joint venture gives the foreign company much more flexibility than a Sino-foreign equity joint venture.
Chinese law allows a Sino-foreign cooperative joint venture to be structured as either a limited or unlimited enterprise.
In a limited-liability co-operative joint venture the foreign investor typically provides the majority of the funds and technology, while the Chinese company provides the land and equipment.
However, unlike a Sino-foreign equity joint venture, the foreign company can be a minority shareholder with no minimum limit.
An unlimited-liability co-operative joint venture is structured so that both parties agree they are liable for the future debts of the enterprise, and no separate legal entity is created.
Both these types of enterprises (limited or unlimited) have the right to hire labor directly – which gives the foreign company, in effect, the status of a legal Chinese person.
Unlike an equity joint venture, a Sino-foreign cooperative joint venture:
- allows parties to split profit on an agreed basis.
- does not require the joint venture to be a legal entity.
- allows foreign companies to have more control over the management of the enterprise.
- allows levels of management to be negotiated.
A Sino-foreign cooperative joint venture also allows the percentage owned by the parties to change throughout the life of the joint venture.
According to the “Law on Sino-foreign Cooperative Joint Ventures”, a Sino-foreign co-operative joint venture should establish a board of directors to: “make decisions on major issues involving the co-operative enterprise in accordance with the provisions of the co-operative enterprise contract or articles of association.”
The law says that one party of the Chinese and foreign partners should “appoint a person to hold the position of chairman of the board of directors or head of the joint management body and a person appointed by the other party shall hold the position of deputy chairman of the board of directors or deputy head.”